Using a buy & hold strategy, in how many years did you reach financial independence?

[Highlygeared]

Seriously $50K? That would have to be excluding rent/mortgage, otherwise, they're living on fumes.

Cutting out all discretionary expenses aka no life would get me to about $60K. And that's excluding rent/mortgage. Throw in a modest o'seas holiday every year and one's easily beyond $100K pre tax. Add in school fees and you're....you get the picture.

 

[skater]

I can only imagine the massive admin hours needed to service and maintain say 25 properties. Even if managing agents are managing the tenants etc., there's still a lot of admin to do.

Takes no time at all, really.

(On a side note, last week hubby had to serve a redundancy notice to one of his subordinates...the poor guy panicked, stood up, ran out of the room, out of the office and into the street...real story...my hubby had to run after him literally ...such was the poor man's psychological stress on seeing the envelope...)

Hubby put in for holidays and was denied them. It's only a small Company & the second in charge told him that he couldn't have them because it wasn't convenient, and that there's not a lot of work on, but he wasn't worried, because unlike him (Hubby) he has a contingency plan.

Although Hubby hasn't told them yet, he WILL be taking his leave at the time that he wants. He just won't be returning.

Has anyone done it predominantly buy and hold without a huge salary or business income, having > 2 kids and pulled the pin under the age of 50 ie completely LOR with NEITHER partner having to work?

One income, two kids, (fully grown now) expensive sport costs. Hubby retires this year aged 49 to LOR. I have built up a business on the side, in the last couple of years, however I don't draw a wage from it. It's predominantly there to mop up losses in our Trust.

Seriously $50K? That would have to be excluding rent/mortgage, otherwise, they're living on fumes.

Cutting out all discretionary expenses aka no life would get me to about $60K. And that's excluding rent/mortgage. Throw in a modest o'seas holiday every year and one's easily beyond $100K pre tax. Add in school fees and you're....you get the picture.

When you have no expenses, it's amazing how little you need. Fully owned PPOR, fully owned cars, with funds available to upgrade when needed, no non-deductable debt, no school fees, solar energy, no tax thanks to depreciation, plenty of money in offsets for a rainy day........

 

[hugh72]

Seriously $50K? That would have to be excluding rent/mortgage, otherwise, they're living on fumes.

Cutting out all discretionary expenses aka no life would get me to about $60K. And that's excluding rent/mortgage. Throw in a modest o'seas holiday every year and one's easily beyond $100K pre tax. Add in school fees and you're....you get the picture.

Understand where you are coming from but with no ppor debt and kids out of school/uni and in the work force it would be okay I imagine. The pension for a couple is nearly half that amount and that would be depressing

 

[virgo]

Financial Independence

Understand where you are coming from but with no ppor debt and kids out of school/uni and in the work force it would be okay I imagine. The pension for a couple is nearly half that amount and that would be depressing

I agree! I am starting to keep records and my kids alone cost me 44K (net) last year

I have roughly worked out my retirement budget (ie sans kids no mortgage):

(a) 60K (net): modest

(b) 80K: medium

(c) 100K : not bad; not bad at all


I take 4% withdrawal rate (read: Mr MoneyMustache ; the frog-singing coach as alluded to in an earlier post)

As a minimum, when your investment portfolio (net assets) hits 1.5 million (ie 60K divided by 4%) you can tell the boss to kick butt...rough mental figures excluding PPOR of course...



A wise uncle once told me that "one is truly wealthy when he knows how much is enough"....do you?

 

[Highlygeared]

As a minimum, when your investment portfolio (net assets) hits 1.5 million (ie 60K divided by 4%) you can tell the boss to kick butt...rough mental figures excluding PPOR of course...

Have already passed that point Virgo but I still can't figure my way out of the rat race inside of approx 8 years via LOR. Longer if interest rates spiral out of control.

For those with young kids and yearning to retire early, I think LOE (not LOG) is a viable strategy if done carefully. In essence, you buy as many growth properties as possible within a quick timeframe, slow down in last few years prior to retirement, and take out a huge chunk of equity to live on just before you pull the pin.

LOR with kids and a mortgage/rent from resi alone takes ages - I'd suggest up to 20 yrs or more of consistent investing/purchasing in Metro suburbs....unless you're brave enough to venture out to regional areas. I'm not. Maybe that's why I'm still working lol.

 

[Rixter]

A wise uncle once told me that "one is truly wealthy when he knows how much is enough"....do you?

Exactly........ if you dont know where you are going, you will never know when you have arrived.

Without a destination all roads look the same...and lies the frustration.

 

[Rixter]

For those with young kids and yearning to retire early, I think LOE (not LOG) is a viable strategy if done carefully. In essence, you buy as many growth properties as possible within a quick timeframe, slow down in last few years prior to retirement, and take out a huge chunk of equity to live on just before you pull the pin.

I think where the confusion is in LOE & LOG as mentioned. We started out with a 1 year old in 2000 and had 2nd child the following year. Over the coarse of the following decade 2000 -2010 we basically purchased a prop per year. Some years none other years 2.. Just prior to rat race exit last year we refinanced topping up all equity lines of credit...

Today we hold a mult-$million portfolio consisting of CG property in metropolitan areas spread across Australia. Im living proof buy & hold with LOE can be done in 15 years...and I believe we tackled it conservatively with no LMI.

 

[natedog]

Exactly........ if you dont know where you are going, you will never know when you have arrived.

Without a destination all roads look the same...and lies the frustration.

100% agree with this simple but often overlooked important part of strategy!

 

[Highlygeared]

I think where the confusion is in LOE & LOG as mentioned. We started out with a 1 year old in 2000 and had 2nd child the following year. Over the coarse of the following decade 2000 -2010 we basically purchased a prop per year. Some years none other years 2.. Just prior to rat race exit last year we refinanced topping up all equity lines of credit...

Today we hold a mult-$million portfolio consisting of CG property in metropolitan areas spread across Australia. Im living proof buy & hold with LOE can be done in 15 years...and I believe we tackled it conservatively with no LMI.

Well without hijacking the thread for personal interest I have 2 options:

1) Exit rat race in 10-12 yrs via LOR (quasi optimistic scenario)
2) Exit rat race in 3-4 yrs via LOE - portfolio value is already 8 digits with a 70% LVR currently. The (perhaps false) sense of comfort is that the bulk of properties are all based in respectable suburbs in Sydney and Brisbane.

Which would you guys choose?

The implicit assumption in allowing me to LOE is that rents grow at rate of CPI, mitigating ballistic interest rate movements before they happen etc. Excluding rent, living expenses + holidays is calculated at circa $110K per annum. If I LOE, tax payable won't be a major issue, as it would be if you were LOR.

 

[Terry_w]

I think that most people are thinking they need a sum which is much more than they actually need. And also consider that if you do stop work it doesn't necessarily mean that you will never earn money again. After a while people often start generating money from hobbies or small businesses - you have to do something in 'retirement'.

 

[Highlygeared]

I think that most people are thinking they need a sum which is much more than they actually need. And also consider that if you do stop work it doesn't necessarily mean that you will never earn money again. After a while people often start generating money from hobbies or small businesses - you have to do something in 'retirement'.

All true Terry, but I don't think one should 'bank' on starting a SUCCESSFUL business etc. that can replace one's income in the immediate future. I would probably work on calcs on being a lounge lizard and any earnings beyond that are a bonus. Being out of a PAYG environment for more than say, 5 years at my age (early 40s) basically rules out coming back later at the same salary, IF anyone will even employ you. It's not like I'm a new graduate taking a sabbatical.

The $110K I've calculated is REAL. I've budgeted down to the cent. In that regard, it would be unwise to suggest it'll be any less when you're not working...even though I will have more time to shop for bargains etc it's not going to be huge bikkies. We already do that to some extent.

My personal view/reality suggests aiming for EARLIER retirement via LOE using a buy/hold resi strategy is simpler, albeit more risky than LOR. In that regard, I wholeheartedly agree with the now banned Dazz who used to call a spade a spade.

I find it much easier to find properties in GOOD, PERCEIVED BLUER CHIP areas where I can manufacture CG or gain a bit of instant equity than find one with 7%+ yield, which is near impossible without granny flatting, renting out room by room etc. I refer here to a conventional buy a house/unit, do a cosmetic reno and rent out.

I have to caveat the fact that I would probably not opt to buy in places like Elizabeth or Willmot or Caboolture etc. Not because they're 'bad' investments but because I think they can slow the process of accumulating props down ie buy a $200 prop and spend 3-4 months from date of purchase, settling, renovating then refinancing to being ready to buy another $200k prop.

It 'feels' quicker and perhaps a better use of time to buy a $400-500K inv prop with lower yield, spend 3-4 months to point where you can buy again and get another $400-500K property. Of course on the assumption that the equity takeout from the first purchase will be in $ terms larger than can be achieved from a $200K purchase. Wild generalisations quoted so apologies in advance.

 

[Terry_w]

All true Terry, but I don't think one should 'bank' on starting a SUCCESSFUL business etc. that can replace one's income in the immediate future. I would probably work on calcs on being a lounge lizard and any earnings beyond that are a bonus. Being out of a PAYG environment for more than say, 5 years at my age (early 40s) basically rules out coming back later at the same salary, IF anyone will even employ you. It's not like I'm a new graduate taking a sabbatical.

The $110K I've calculated is REAL. I've budgeted down to the cent. In that regard, it would be unwise to suggest it'll be any less when you're not working...even though I will have more time to shop for bargains etc it's not going to be huge bikkies. We already do that to some extent.

Yes that is true too.

Just think every $1 you get your expenses down means you can retire X weeks faster.

 

[skater]

Well without hijacking the thread for personal interest I have 2 options:

1) Exit rat race in 10-12 yrs via LOR (quasi optimistic scenario)
2) Exit rat race in 3-4 yrs via LOE - portfolio value is already 8 digits with a 70% LVR currently. The (perhaps false) sense of comfort is that the bulk of properties are all based in respectable suburbs in Sydney and Brisbane.

Which would you guys choose?

The implicit assumption in allowing me to LOE is that rents grow at rate of CPI, mitigating ballistic interest rate movements before they happen etc. Excluding rent, living expenses + holidays is calculated at circa $110K per annum. If I LOE, tax payable won't be a major issue, as it would be if you were LOR.

Very hard to say without knowing the details of your portfolio, but I would look at removing all non-deductable debt, including no debt on a PPOR before I even looked at retiring.

 

[Highlygeared]

Very hard to say without knowing the details of your portfolio, but I would look at removing all non-deductable debt, including no debt on a PPOR before I even looked at retiring.

Hi Skater, we don't live in a PPOR, and highly unlikely we ever will. With entry level 2 bed houses in the suburb of our choice starting at nearly $1.5mill, we don't have much of a choice. Plus ironically I kinda like the freedom that renting offers.

We pay $720pw in rent for a townhouse that would sell for approx $1.2mill in this market. So you can assume safely in today's dollars that on top of the $110K in living and holiday money that we we will be up for $40K in rent.

We compromise on a lot, eg eating out, a fairly compact townhouse etc but living where we want to is one of the non negotiables.

 

[virgo]

Early to retire

Hiya Highly Geared

In your earlier post, you mentioned portfolio of 8 digits and LVR 70%; good position..but methinks you want to hold on AND want to retire early?

Unless your portfolio is very cash flow positive, and assuming your needs are 100K net per annum, and you really, really want to retire early, then have you considered (god forbid) selling part of your portfolio?

say min. 10,000,000 portolio (you did say 8 figures )

70% LVR means net assets at least 3 million.

Use 1 million to buy a PPOR ( i know it is hard but hey ! you really really want to pull the plug right?)

leftover 2 million; conservatively 4% return 80,000 (or more in blue chip shares) ...tighten your belt by 20,000(you did say you rent right) and hey presto you are done...


QN is are you willing to bite the bullet?

 

[skater]

I have to caveat the fact that I would probably not opt to buy in places like Elizabeth or Willmot or Caboolture etc. Not because they're 'bad' investments but because I think they can slow the process of accumulating props down ie buy a $200 prop and spend 3-4 months from date of purchase, settling, renovating then refinancing to being ready to buy another $200k prop.

It 'feels' quicker and perhaps a better use of time to buy a $400-500K inv prop with lower yield, spend 3-4 months to point where you can buy again and get another $400-500K property. Of course on the assumption that the equity takeout from the first purchase will be in $ terms larger than can be achieved from a $200K purchase. Wild generalisations quoted so apologies in advance.

Let me give you a different viewpoint. Again, there's some generalisations here, but look at it with an open mind. Of course, we all come into this with different circumstances, so what suits me, may not suit you. Anyway......

I look at it this way. You can buy your one $400k property with a 3% yield, while I buy two $200k properties with a 7% yield. The tide, when it comes in will raise the values of all properties (for instance, Sydney). Your $400k property will rise in value to $800k, and my $200k properties will rise to $400k. So, we are still roughly at the same level of assets & equity to how we both started at the beginning, right?

The difference here though is that your places have a lower yield, meaning that you've had to dip into your pocket to pay for them, meanwhile mine have been neutral/positive, so no out of pocket expenses. I've also been able to go again & buy another place much sooner, because I need less deposit, so after a few years, I now have three cheaper properties & you have one more expensive property.

Fast forward, we've had a bit of CG & we both go & buy more property with the equity. With a presumption that we buy properties of the same value as the existing ones, you buy another two properties, bringing your total to three $800k properties (because the value's gone up), and I go out and triple my properties as well, but because I've already got three - I was able to sneak another one in at the halfway mark, remember - my holdings go up to nine properties, all worth around $400k. So....you now have assets of $2.4m & I have assets of $3.6m.

Now, here's the really good part. I'm probably on a lower income than you, because lower income investor's often have to look at investing from a different viewpoint as those who earn a high income. You've had to dip into your pocket from day one, while I have not. So, as a lower income investor, I've been able to build a portfolio of properties to a higher value, with a better cashflow. I also need less money to retire on, as I've never had a high disposable income, so reaching a level of income to retire on from my portfolio is much easier to do.

 

[MTR]

Hiya Highly Geared

In your earlier post, you mentioned portfolio of 8 digits and LVR 70%; good position..but methinks you want to hold on AND want to retire early?

Unless your portfolio is very cash flow positive, and assuming your needs are 100K net per annum, and you really, really want to retire early, then have you considered (god forbid) selling part of your portfolio?

say min. 10,000,000 portolio (you did say 8 figures )

70% LVR means net assets at least 3 million.

Use 1 million to buy a PPOR ( i know it is hard but hey ! you really really want to pull the plug right?)

leftover 2 million; conservatively 4% return 80,000 (or more in blue chip shares) ...tighten your belt by 20,000(you did say you rent right) and hey presto you are done...


QN is are you willing to bite the bullet?

If this is the case? LVR is too high? I can't see LOE working on these numbers.

Retire - access equity, increase LVR, are the properties all in Syd?? if so you are stuffed because the boom is actually happening now and if I was a betting person we are probably not far from the peak, give or take 6-12 months, remember what happened when this market tanked, its a long time between drinks.

Of course banks don't like this LVR when you don't have income??? This is a train wreck waiting to happen, sorry going to call a spade a shovel here.

MTR

 

[Highlygeared]

Hiya Highly Geared

In your earlier post, you mentioned portfolio of 8 digits and LVR 70%; good position..but methinks you want to hold on AND want to retire early?


Unless your portfolio is very cash flow positive, and assuming your needs are 100K net per annum, and you really, really want to retire early, then have you considered (god forbid) selling part of your portfolio?

say min. 10,000,000 portolio (you did say 8 figures )

70% LVR means net assets at least 3 million.

Use 1 million to buy a PPOR ( i know it is hard but hey ! you really really want to pull the plug right?)

leftover 2 million; conservatively 4% return 80,000 (or more in blue chip shares) ...tighten your belt by 20,000(you did say you rent right) and hey presto you are done...


QN is are you willing to bite the bullet?

Hi Virgo, the devil is in the detail. $3m net does not imply $3m cashout, its more like $1m cashout (today) via an 80% LVR. Noone's gonna lend 100%, not that anyone would LOE at 100%. SANF would be out the window.


If I liquidated a big part of the portfolio, take away CGT, the exorbitant $ I've claimed on depreciation and selling fees etc and that on paper $3m profit will probably come down to $2m.

The other part of your calcs that's implied is that the portfolio is fully self sustaining. It isn't currently, although that will be addressed in the next 24 months via a granny flat and a development to get it to parity.

You are right though- I DO want to hold and retire early. Not because I'm a hoarder but through the years, I've experienced first hand that the greater the $ size of your portfolio, the safer you are. You have multiple avenues to tap into equity for a rainy day. That becomes even more important I think when you don't have a recurring PAYG/business income.

 

[MTR]

Hi Virgo, the devil is in the detail. $3m net does not imply $3m cashout, its more like $1m cashout (today) via an 80% LVR. Noone's gonna lend 100%, not that anyone would LOE at 100%. SANF would be out the window.

And the other part of your calcs that's implied is that the portfolio is fully self sustaining. It isn't currently although that will be addressed in the next 24 months via a granny flat and a development to get it to parity.

You are right though- I DO want to hold and retire early. Not because I'm a hoarder but through the years, I've experienced first hand that the greater the $ size of your portfolio, the safer you are. You have multiple avenues to tap into equity for a rainy day. That becomes even more important I think when you don't have a recurring PAYG/business income.

The greater the $ size of your portfolio, the safer you are? You reckon?? you must have purchased in the Syd market on the rise.
When markets crash no property is safe and that goes for blue chip as well, they just fall harder, and equity can go backwards.
If you have been through many property boom/bust cycles you will know this one.

Keeping LVR at a safe level is the big one.

Also gurus stopped promoting LOE because bank policy changed, no more lo doc/no doc??
BTW these gurus promoting this strategy were not actually LOE but selling this spin to investors but they were infact LOB (Living off their Business), smart don't you think

I think one question I would ask if anyone is LOE today is - how long have you been doing this, years???

 

[Highlygeared]

Hi MTR, in my (potentially skewed) interpretation of LOE is essentially a once off. Say my debt is 1mill and value of portfolio is 2 mill. I go into bank whilst gainfully employed/ own a profitable business and top up to 80% ie walk away with $600K and NEVER come back to ask for money. That's potentially doable.

What you're probably referring to is LOG without a job/income ie living off growth where you periodically, say every year, go back to bank and ask for $50K because your portfolio went up by 5% that yr. That's the strategy that isn't going to work and fraught with danger of having to systematically sell down your portfolio.

The key to LOE is the size of the portfolio to start with as well as the LVR, coupled by a portfolio that's not bleeding you dry cashflow wise. Me personally, I'm not there yet but with some luck I will.

I would rather have a $10m portfolio with 70% LVR than a $5m portfolio with 30% LVR as long as the cashflow situation was under control.

As far as Sydney values are concerned I agree with you, a correction is on the cards. I'm factoring 10% across the board, worse in the West - places in the Blacktown LGA, etc, some parts of the Hills, those will be hit hardest. I'm fairly conservative in my numbers so I've used the 10% off numbers...hopefully for my sake it will be conservative enough. I've invested in Sydney since 1997 and have seen a fair share of ups and downs. The current boom is obviously that, an unsustainable boom, but Sydney will always be Sydney. And I haven't bought in Sydney since 2012 - Sash isn't the only oracle on this forum

Again I'm sorry if I've hijacked this thread. Love to hear more stories from others more successful in reaching their goals of course.